Breaking Up When You Live Together

These days, it’s common to share a roof to cut expenses. But when things go sour, how do you walk away and stay financially sound? We explore the best breakup practices for couples who live together.

By Matt Schneidermanven in the best of circumstances, breaking up is painful. But when the economy is down and money is tight, the financial toll can be particularly costly for splitting couples — jointly owned properties, businesses, or assets valued at less than what they were purchased means selling them together would incur a loss. Compound some hurt feelings with

Act with prudence, as you would if you were going into business with a stranger.

complicated monetary entanglements and there’s potential for disaster. Follow this advice to ensure your financial stability in the event of a breakup.

Hope for the best, plan for the worst
The more thoughtful you and your partner are about entering into any sort of monetary arrangements — joint purchases, entrepreneurships, loans — the less difficulty you’ll face in the long run or in the event of a breakup. Therefore, planning ahead early in the relationship is crucial: “In a romance, couples look to the positives and ignore the negatives,” says David O’Sullivan of family law firm Simeone & O’Sullivan in Morristown, NJ. “No one ever says, ‘Breaking up is a potential reality.’ Couples want to go in on investments together and imagine everything working out, but they don’t consider the ‘what ifs’ — what might happen if they dissolve the relationship.” It’s not difficult: use common sense and a thorough approach before getting into a joint business or purchase with your significant other and have a plan for what will happen with those assets in case things don’t work out. And don’t skirt protections for the sake of appeasing your partner. “An ounce of prevention is worth a pound of cure,” says O’Sullivan.

Detach
When entering into a joint business or purchase, maintain a certain level of emotional detachment. Act with prudence, as you would if you were going into business with a stranger. “People have a hard time separating personal and professional life in a business relationship,” says Arlene Dubin, a New York-based matrimonial attorney at Moses & Singer, LLP and author of Prenups for Lovers. “Inevitably, your emotions are going to affect you.” Still, remaining calm and acting professional can help you work through issues. “You wouldn’t argue with your boss or colleagues at work the way you argue with each other,” says Dr. Tina B. Tessina, Ph.D., author of Money, Sex and Kids. “Even if your boss makes you angry, you would most likely use self-control at the office and blow off steam in private to your coworkers or a friend. Then, when you had a chance to think about the situation, you’d develop a better way of handling it and approach your boss with a thoughtful response. You can do the same thing with your partner when you have a money problem. Instead of saying the first thing that occurs to you, such as making criticisms or assigning blame, stop and think of a response that’s more likely to lead to a productive discussion of the problem rather than an argument.” This is especially necessary if you decide to hold onto anything jointly after a breakup. “When you present an idea or solution, think about what your partner would like about it, and lead with that,” advises Tessina. “Say, ‘I know we’ve had a difficult time, but we have to share these assets, so let’s figure out how to do it without a struggle.’” This is truthful, thoughtful and more likely to elicit a positive response.

Involve an objective third party
When investments and significant monetary decisions are being made, an outsider’s perspective should be sought. This is even more necessary when couples aren’t seeing eye-to-eye — romantically or financially. “Couples who are used to fighting about money should sit down with an independent financial advisor who can help them work out an equitable agreement for how the assets will be managed,” says Tessina. Bruce McClary, media relations coordinator for ClearPoint Credit Counseling Solutions (clearpointccs.org), represents former debt collectors and credit counselors with experience working with individuals and couples going through financial adjustments, such as those brought about by divorce. “We’re not relationship counselors, but it helps for couples to talk to us. We have experience with debt and loans and can spell out the responsibilities of joint accounts — and the consequences of not maintaining them,” McClary says. A financial advisor will also inform you of the ramifications of a split, including asset liquidations and the post-sale tax responsibilities involved. And legal counsel can help you see what’s at stake and allow you to make informed decisions before making those financial commitments in the first place.

Put it all in writing
Regardless of the nature of your mutual joint investments, you and your partner should always have a written agreement. “There should be legal partnership or LLC documents that outline each party’s obligations, and they should be clear about how the business or property will be run in the case of a breakup if the couple decides to hold on to it,” says Dubin. File all important records somewhere safe; pulling them later could be necessary in proving your obligations should you face a worst-case scenario (for example, a loan or mortgage default). “Keep all your correspondence with debt collectors,” says McClary. “You’ll need them all if you have to go after the other person to recover his or her portion of unpaid debt.”

Know your part
Understanding your individual rights and responsibilities will make any potential split much less stressful. “Take care of yourself financially,” says Tessina. “You’ll feel a lot less resentment if you get your fair share of the assets and set yourself up to be financially secure.” If you weren’t the money manager, make

I liken it to nuclear war: each partner files as a preemptive strike.

sure you understand whatever you need to know about finances (an advisor can help you). Learn how to budget, pay bills on time, control spending, and plan for your financial future. Knowing the score is an absolute necessity if you have shared debt: regardless of any personal agreements you have with your partner, a default on a loan is each party’s responsibility in toto. “I’ve seen cases where one person walks away, basically saying, ‘the loan was for something you wanted to do — you deal with the debt,’” says McClary. “So the first party paid half of the debt, but was still held fully accountable for the total amount owed. Each person bears full responsibility, and the debt collector will go after whichever party it can locate.” To avoid having your credit wrecked by a default, pay off the loan yourself or work with the debt collector on payments. You can still go after your ex for compensation via legal recourse. And since any joint debt record impacts personal credit, file a letter with the major credit bureaus, advises McClary: “Every consumer has a right to add a written statement with an explanation of the circumstances surrounding a defaulted loan to his or her credit file. It’s free and easy to do.”

Post-breakup asset management
The number-one reason for arguments and problems in relationships is financial woes. If this is indeed the reason for your breakup, navigating those waters after the fact is fraught with peril. Jointly owned businesses strain the best of friendships, and expecting to peaceably co-manage a property or shared investment after an emotional severing between you two is wishful thinking at best. But splitting couples do sometimes share and co-manage assets or trusts after a breakup, as in the case of a business in which both share equally, or assets that they choose not to liquidate for various reasons, including depressed prices, or wishing to pass the asset(s) on to children. “It is extremely difficult for people with a terminated relationship to be in a business partnership,” says Dubin. “But if you do, you’ll need to document very clearly who’s to do what, like management, maintenance in the case of a co-owned joint rental property, for instance.”

Walk away by selling or buying out your share
In the case of a business, there are options for terminating a partnership that don’t necessarily require liquidation. “One partner may say, ‘I don’t want it, you take it,’” says O’Sullivan. “‘I’ll give you the asset, and you’re solely liable for any risk. You will also have the opportunity to see any of the gain.’” If you can’t afford to offer a lump sum to buy out your share, consider offering a steady stream of payments or a percentage of future proceeds once the business is sold. If it’s a co-owned property, though, it’s important to factor in affordability, says Deborah Owens, Washington D.C.-based author of A Purse of Your Own. “When you bought into the property, the affordability was likely based on two incomes. Mortgages are generally affordable at 31% to 35% of your combined gross income.” So if one of you is planning to take on the entirety of your mortgage, consider whether you can realistically afford it on your own. “You’ll need to refinance and place the loan into one person’s name, which increases your responsibility.”

Don’t overreact
The complication of ambivalent feelings about your partner will certainly affect your financial dealings, but staying cool will ultimately save you a lot of money. “Post-breakup, this means being careful not to use money as a weapon against each other, or being irresponsible about it,” says Tessina. “A successful, financial outcome requires that both partners act like adults.” Personal hostilities could otherwise become costly. If there’s a disagreement about splitting a business, for example, involving a professional appraiser could cost as much as $30,000 — an amount that’s likely more than the business assets themselves are worth. Litigation should always be your last resort. “When people dig their heels in and start fighting over things they should handle on their own and involve the courts, the costs will escalate exponentially,” says O’Sullivan. “It could eclipse the value of what they’re fighting over. Or, worse, there will be legal fees to pay on top of the loss.” Similarly, filing for bankruptcy should be avoided, if possible. “A lot of couples file for bankruptcy,” says McClary. “I liken it to nuclear war: each partner files as a preemptive strike, knowing that it will damage both people’s credit. My goal as a credit counselor is to keep it from getting to that point.”New York City-based freelance writer Matt Schneiderman has written for Stuff and Sync.